Saffron Retail: How Many Distribution Centres?
Operations
medium50 min0 submissionsAmazon
Scenario
Saffron Retail is a apparel retail business in India shipping about 4m orders a year on ₹310 Cr of revenue.
It runs 2 distribution centres today. The supply chain team has proposed moving to 5.
Current economics per order:
- Line-haul: ₹61
- Last-mile: ₹75
- Average delivery time: 3 days
Under the proposed network:
- Each additional DC costs ₹6 Cr a year to run
- Last-mile falls to about ₹56 per order, because stock sits closer to customers
- Average delivery time falls to 2 days
- Marketing estimates faster delivery is worth roughly 4.8% of revenue in additional sales
The CFO is resisting on the grounds that fixed costs go up.
Supporting data
volume
- revenue
- 310
- orders m per year
- 4
derived hints
- added fixed cost
- 18
- revenue lift value
- 14.9
- last mile annual saving
- 7.6
current network
- avg delivery days
- 3
- last mile per order
- 75
- line haul per order
- 61
- distribution centres
- 2
proposed network
- avg delivery days
- 2
- dc fixed cost each
- 6
- last mile per order
- 56
- distribution centres
- 5
- estimated revenue lift pct
- 4.8
Your task
Advise on the network. Your answer should provide:
- Analysis — total cost-to-serve under both networks, computed.
- Risks — what the case depends on and what you would monitor.
- Recommendation — a specific number of DCs and why.
State any assumptions you make.
Ready to move forward? Up next: Wavelength Media: Review This DCF Before It Goes to the ICNext question
How you'll be graded
100 points, 60% to pass.
- recommendation20
- service tradeoff25
- problem structuring25
- quantitative analysis30
Hint
Reveal suggested structure
Cost-to-serve build-up; fixed vs variable trade; service level as revenue; marginal DC analysis